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Buy Retirement Home Now Is Wise

OCEAN CITY – Pulling up stakes soon after retirement is fast becoming the norm. In fact, more than any previous generation, baby boomers expect to relocate in retirement, according to surveys by Del Webb, a retirement-housing corporation.1 While the allure of a milder climate or the enjoyments of being close to grandchildren are compelling reasons to move, many new retirees are wary of selling their current home during a weak housing market. But there are solutions that can help you get the best of both worlds: buying your retirement home now, when prices are relatively low, while holding on to your current home until the market recovers.

Bargain prices are abundant in many parts of the country, particularly in some established resort areas and retirement communities in Florida and Arizona — states hard hit by the downturn in the housing market.

"Home prices are very attractive right now," says Jennifer Andersen, a Dallas-based Wealth Management Banker at Bank of America Merrill Lynch. "We’re hearing from a number of clients who say that they’ve found their dream home and would like to buy now before prices start going up."

Individuals nearing or entering retirement, however, typically do not want to liquidate stocks and other investments to cover the down payment for their next home purchase. Selling your current home is one way to avoid drawing from the retirement nest egg you’ve worked hard to accumulate. And current tax laws allow married couples to exclude as much as $500,000 in capital gains from the sale of a primary residence (single homeowners can exclude $250,000), as long as they have owned the house or used it as a primary residence for two of the past five years.

But while the price tag for a retirement home could be attractive, it could also be difficult to get the full value of your current residence. One solution, says Andersen, is bridge financing, which leverages your investments to take advantage of today’s low interest rates. Through Merrill Lynch’s Mortgage 100 program, for example, clients can avoid coming up with a cash down payment by pledging eligible securities held in a Merrill Lynch account as collateral. "This solution offers clients the liquidity they need with the flexibility of keeping their investment portfolio and retirement-planning strategy intact," says Andersen.

When considering using Mortgage 100 to finance the entire purchase price of the home rather than an amount reduced by a down payment, clients may increase their deductible interest expense. And when the time is right to sell the family home, they can opt to use those funds to pay down the principal of their retirement-home mortgage without penalties, reduce the interest-only payment or pay off the mortgage all at once.

One benefit of owning your retirement home and also keeping your permanent residence is that it gives you a chance to test out a new location before completely severing ties to an area where you’ve spent your working years.

"Transitioning into retirement can be stressful for all kinds of reasons," explains Andersen. "Spending time in your retirement destination by acquiring a second home can be a good step forward."

And by working with your financial advisor to find the right financing solutions for your unique needs, you can achieve that step without draining your retirement savings.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)